Impact of GST on Real Estate Sector – New Tax Rates & its Conditions

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  • Last Updated on 28 June, 2021
The issue of GST on the Real Estate is always on debatable issue and has lead to more confusion than clarity. Post GST there is a slowdown in the Real Estate Sector and it is well known to every stakeholder. Although government in order to boost this sector and to generate more revenue as well employment, has tried to bring more clarity on this issue but it has not worked.
 
Recently the government has issued a series of notifications from Notification No. 3/2019-CT(R) to 9/2019-CT(R) all  dated 29/3/2019 with an attempt to reduce the GST impact on the Real Estate Sector. Although the notifications has been  issued but the confusion persisted and therefore government came with two FAQs No.354/32/2019. The first FAQs were issued 1st dated 7th May2019 whereas the 2nd was issued on 14th may 2019.
 
It is irony of the tax payer that when the government has issued the FAQs, it is the matter of great doubt whether it is going to help the tax payer or create more confusion. Further it is a matter of great concern that these FAQs are with the caveat of disclaimer, when it says that these FAQs has no legal binding force. It has no legal sanctity and in case of conflict then the interpretation of the notification will prevail. The issue of legal blindness and its effect can be discussed in detail, however as of now, we have focused our attention on the core issue of Real Estate.
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These notifications are the outcome of the GST Council 33rd and 34th meeting. The object of the notification is to fulfill the commitment of the government “Housing for all by 2022”. The highlights of the above said notification are as under-
 
1. With effect from 1st April 2019 GST shall be levied at the rate of 5% without ITC on the residential house properties outside the affordable residential apartments and 1% without ITC on affordable residential apartments.
 
2. The affordable house apartments has been defined as a residential apartment in the project which commences on or after 01-04-2019, or in an ongoing project in respect of which the promoter has opted for new rate of 1% having carpet area upto 60 square meter in metropolitan cities and 90 square meter in cities other than metropolitan cities and the gross amount charged for which, by the builder is not more than forty five lakhs rupees.
 
3. Intermediate tax on the development rights such as TDR, JDA, lease (premium), FSI shall be exempted only for such residential house property on which GST has been payable. 

New GST Tax Rates:

Therefore the new tax rates are as under-

i. New rate of 1% without ITC on construction of affordable house shall be available for

 

a) All houses which meet the definition of affordable houses as decided by GSTC, and b) Affordable house being constructed in ongoing projects under the existing Central and State housing schemes presently eligible for concessional rate of 8% GST (after 1/3rd land abatement)

ii. New rate of 5% without ITC shall be applicable on construction of

 

a) All houses other that affordable houses in ongoing projects whether booked prior to or after 1-4-2019. In case of houses booked prior to 1-4-2019, new rate shall be available on installments payable on or after 1-4-2019. b) All houses other than affordable houses in new projects. c) Commercial apartments such as shops, offices etc. in a Residential Real Estate Projects (RREP) in which the carpet area of commercial apartments is not more than 15% of total carpet area of all apartments.

Conditions for the New Tax Rates

The new GST tax rates of 1% and 5% shall be available subject to following conditions- a) ITC shall not be available.   b) 80% of inputs and inputs services {other than capital goods, TDR/JDA, FSI, long term lease (premiums)} shall be purchased from registered persons. On shortfall of purchase from 80%, tax shall be paid by the builder @18% on RCM basis. However, Tax on cement purchased from unregistered person shall be paid @28% under RCM, and on capital goods under RCM at applicable rates.

New GST Rate for Real Estate Sector

Notification No. 11/2017 CT(R), dated 28-6-2017 as amended by Notification No. 3/2019 CT(R), dated 29-3-2019. New GST rate (w.e.f. 1-4-2019) on real estate sector are summarized as under-

Residential Real Estate Project (RREP)

Real Estate Project 

( REP)

Projects

New Project (Rate)

Ongoing Project (Rate)

New Project (Rate)

Ongoing Project (Rate)

Affordable Residential Apartment

1.5%

1%

1.5%

1%

Other than affordable residential apartment

7.5%

5%

7.5%

5%

Commercial Apartment

7.5%

5%

18%

12%

 

GST Rate Finder

 

Conditions for Availing New GST Rate

The benefit of reduced rate on new projects or on ongoing projects shall be available subject to the following conditions- 1. Tax @1% or 5% shall be discharged by debiting the electronic cash ledger i.e. tax shall be paid in cash. 2. ITC cannot be availed for the projects on which tax paid reduced rates. 3. ITC not availed has to be reported in GSTR-3B separately.   4. ITC paid on goods and services used in supplying the services have not been taken except to the extent as prescribed. (Eligibility ITC on goods and services received on or after 1-4-2019= Total ITC availed on inputs and services from 1-7-2017 to 31-3-2019 – Eligibility ITC attributed attribute to construction of commercial portion and construction of residential portion which has time supply on or before 31-3-2019) 5. The tax can be paid in cash or by utilizing credit, an amount equivalent to the ITC attribute to construction in a project, time of supply of which is on or after 1ST April, 2019. (Amount payable= Total ITC availed on inputs and input services from 1-7-2017 to 31-3-2019 – Eligibility ITC attribute to construction of commercial portion and construction of residential portion which has time of supply of suplly on or before 31-3-2019) 6. In case transfer of development right against consideration, wholly or partly, in the form of construction of apartments, developer shall pay tax on supply of construction of apartments to the landowner. 7. Landowner shall be eligible for credit of taxes charged form him by the developer towards the supply of construction of apartments by developer to him, provided the landowner further supplied such apartments to his buyers and pays tax on the same which is not less than the amount of tax charged from him on construction of such apartments by the developer. 8. Eighty percent (80%) of value of input and input services would be procured from registered supplier only. 9. If the value of input and input services from registered supplies during the financial year falls short of the said threshold of 80%, then tax shall be paid by the developer on value of input and input services comprising such shortfall @18% on RCM basis. 10. In case where cement is received from a unregistered person, the developer shall pay tax on supply of such cement @28% on RCM basis.   11. If capital goods are procured from a unregistered dealer then, RCM at applicable rates to be paid by developer. 12. Input and Input services on which tax is paid on RCM shall be deemed to have been purchased from registered person. 13. Developer shall maintain project wise accounts of inward supply from registered and unregistered supplier and calculate tax payments on the shortfall of 80% at the end of the FY.   14. Promoter shall submit the details of project information in the prescribed form electronically on the common portal by end of the quarter following the FY.  

Author: Prakash Sinha, FCA. LLB

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